2021-11-15_How_Quickly_Will_Social_Security_Run_Out_of_Money
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00:00:30.000 | Welcome to Radical Personal Finance,
00:00:31.000 | a show dedicated to providing you with the knowledge,
00:00:33.000 | skills, insight, and encouragement you need
00:00:35.000 | to live a rich and meaningful life now
00:00:37.000 | while building a plan for financial freedom
00:00:39.000 | in 10 years or less.
00:00:41.000 | My name is Josh Ruschitz, and today on the show
00:00:43.000 | we're going to talk about the United States
00:00:46.000 | Social Security System.
00:00:48.000 | I'm going to share with you a few of the highlights
00:00:50.000 | from the recent report published by the,
00:00:55.000 | who are the Board of Trustees
00:00:57.000 | of the Federal Old Age and Survivors Insurance
00:01:00.000 | and Federal Disability Insurance Trust Funds.
00:01:02.000 | I'm going to share with you a little bit
00:01:03.000 | of a background overview of Social Security
00:01:07.000 | in an effort to enlighten you as to what the effects are,
00:01:14.000 | what's happening right now,
00:01:15.000 | especially in the wake of the pandemic,
00:01:17.000 | to the Social Security System
00:01:19.000 | and to the so-called Social Security Trust Fund.
00:01:22.000 | Now, this may not generally be considered
00:01:24.000 | to be the most riveting of topics.
00:01:29.000 | It's not nearly as fun as talking about
00:01:31.000 | perhaps something that is more flashy,
00:01:33.000 | but I want you to understand what is actually happening
00:01:36.000 | in the actual numbers so that you will be prepared
00:01:40.000 | to actually predict what is appropriate in the future.
00:01:45.000 | I don't think that there will be really any listeners
00:01:49.000 | of radical personal finance who need to change
00:01:52.000 | their own individual behavior based upon this.
00:01:55.000 | I have no clients, and I would imagine virtually no listeners,
00:02:00.000 | who are entirely dependent upon Social Security
00:02:04.000 | to keep them out of poverty in their old age.
00:02:08.000 | Those people just simply don't listen
00:02:10.000 | to radical personal finance.
00:02:11.000 | They should. I would love it if they did, but they don't.
00:02:15.000 | But what I do have is a significant number
00:02:17.000 | of listeners who are going to be affected
00:02:20.000 | by changes in the Social Security System
00:02:23.000 | as it comes over the coming years and decades.
00:02:26.000 | That's why I want you to be prepared
00:02:28.000 | with the actual numbers and analysis.
00:02:32.000 | In just a moment, I'll give you my executive summary,
00:02:34.000 | but before I do that, if you notice any weird timing
00:02:37.000 | or any weird pauses, I've been fighting.
00:02:40.000 | I have a significant sore throat today,
00:02:42.000 | which makes it difficult to speak.
00:02:44.000 | I'm lacking my usual stentorian tones
00:02:47.000 | and usual smooth delivery as I pause to take sips of water.
00:02:51.000 | I hope you'll be forgiving for me,
00:02:53.000 | but I wanted to try to bring this topic to you today
00:02:56.000 | to share with you where we are going from here.
00:03:00.000 | Let's begin with an overview.
00:03:01.000 | I'll tell you what I'm going to say,
00:03:02.000 | and then I'll give into the details, the numbers, etc.,
00:03:05.000 | to back up the claims that I'm going to say.
00:03:07.000 | One of the things that is nice about the United States
00:03:10.000 | is that it is a wonderful place for wage earners
00:03:15.000 | to live and to earn money.
00:03:18.000 | The United States has an incredibly strong labor market,
00:03:21.000 | a very robust job market.
00:03:23.000 | You can get phenomenally great jobs in the United States.
00:03:27.000 | You can make a lot of money,
00:03:28.000 | and the taxes on wages in the United States
00:03:32.000 | are relatively modest when compared
00:03:35.000 | to some of the highest tax places in the world.
00:03:39.000 | Now, when we talk about taxes on wages,
00:03:41.000 | remember that there are always two components,
00:03:43.000 | two major components to those tax systems.
00:03:46.000 | The taxes that most people think about
00:03:49.000 | are the taxes known as federal income taxes,
00:03:52.000 | and those taxes are significant,
00:03:55.000 | especially when you get to very high levels of income.
00:03:58.000 | But for many people, at least those who earn
00:04:00.000 | maybe up to a few hundred thousand dollars per year,
00:04:03.000 | those taxes on your federal income taxes can be diminished.
00:04:09.000 | You can make contributions to retirement accounts.
00:04:11.000 | You can take various credits for their children,
00:04:15.000 | for various deductions that you may have.
00:04:18.000 | And then the overall tax rate system,
00:04:21.000 | while it is progressive and not insignificant,
00:04:25.000 | is nowhere near as significant
00:04:27.000 | when you compare it to some other tax systems.
00:04:29.000 | If you put the U.S. federal income tax brackets and rates
00:04:34.000 | up next to, say, the Dutch income tax brackets and rates,
00:04:38.000 | there is a shocking disparity between those two systems.
00:04:43.000 | Where the United States really shines, though,
00:04:45.000 | even and especially compared to many other countries in the world,
00:04:49.000 | is that the employment taxes,
00:04:52.000 | or what are commonly referred to as the social taxes,
00:04:56.000 | because they usually include Social Security and medical systems,
00:05:00.000 | those taxes are much more modest in the United States
00:05:03.000 | than they are in many other nations around the world.
00:05:06.000 | Frequently, when you're doing international tax planning,
00:05:08.000 | you might go to a jurisdiction that has relatively low income tax rates,
00:05:14.000 | but you go and perhaps start working in that jurisdiction
00:05:18.000 | or place a company in that jurisdiction,
00:05:20.000 | hire employees in that jurisdiction,
00:05:22.000 | and quickly you find that the social taxes are very, very significant.
00:05:26.000 | The social taxes in the United States are not very, very high.
00:05:31.000 | The social taxes in the United States
00:05:32.000 | are a combination of your Social Security taxes
00:05:36.000 | and your Medicare taxes.
00:05:39.000 | In the United States, you have a system whereby the taxes
00:05:45.000 | are actually remitted separately by employee and employer.
00:05:51.000 | Of course, the law would say that the employee has a portion of the tax
00:05:55.000 | and the employer has a portion of the tax,
00:05:57.000 | but that's a propaganda item.
00:06:00.000 | You're the one who's paying all the tax,
00:06:03.000 | and the employer is calculating before he hires you,
00:06:06.000 | the employer is calculating the total cost of employing you,
00:06:11.000 | and that total cost includes paying your social taxes,
00:06:15.000 | your employment taxes.
00:06:17.000 | But those taxes are separated out.
00:06:19.000 | There is a rate of 6.2% that the employer pays directly of your wages,
00:06:26.000 | and then you have 6.2% of your wages withheld in your paycheck
00:06:32.000 | for a total of 12.4% of your wages held for Social Security.
00:06:41.000 | Then in addition, there is the Medicare tax.
00:06:44.000 | The Medicare tax rate is 1.45% for the employer,
00:06:48.000 | directly paid portion,
00:06:49.000 | and 1.45% for the portion that is deducted from your wages.
00:06:55.000 | And so that total there is 2.9%.
00:06:59.000 | You add 12.4% to 2.9% and you get 15.3% total.
00:07:06.000 | Now, there are a couple of changes to this.
00:07:09.000 | First of all, there is an additional Medicare tax rate.
00:07:13.000 | So if an individual is earning more than $200,000 of wages in a calendar year,
00:07:22.000 | then there is an additional 0.9% of Medicare tax that that employer has to pay on the wages.
00:07:31.000 | And then there is a wage base limit, which applies exclusively to Social Security wages.
00:07:37.000 | So the wage base on which those Social Security taxes are calculated is $142,800 of wages.
00:07:46.000 | So all of your wages that are $142,800 and lower,
00:07:50.000 | you're going to wind up with a total taxation on those wages of 12.4%,
00:07:54.000 | split 6.2% out of the employee paycheck, 6.2% directly from the employer.
00:07:58.000 | Everything above that $142,800 limit,
00:08:02.000 | you will not be paying Social Security taxes on that at this current time under the current law.
00:08:09.000 | Now, over the years, as we've watched the fiscal difficulties that the United States faces,
00:08:16.000 | many people have predicted higher taxes.
00:08:19.000 | We've seen recently the debates around federal income tax collections.
00:08:23.000 | Well, for all of the hoopla, it seems that if a bill is passed,
00:08:29.000 | most of the most feared increases in taxes will have disappeared from that final bill.
00:08:35.000 | But those federal income taxes are not specifically related to the social taxes.
00:08:43.000 | Over the years, I've talked, and if you go back and you talk about my episodes a number of years ago,
00:08:48.000 | about the ticking time bomb that no one wants to even talk about,
00:08:51.000 | which is the fiscal situation in the United States,
00:08:54.000 | I explained the numbers and I explained what you would need to see in the next few years.
00:08:58.000 | And I said, if you see these changes, then you'll know that the United States will continue to be stable on a fiscal perspective.
00:09:05.000 | If you don't see these changes, then just know that it's going to get worse and worse and worse.
00:09:09.000 | And by the way, worse does not mean catastrophic.
00:09:12.000 | I don't think that it's all bad. I'm pretty well persuaded.
00:09:15.000 | I like how Dr. Gary North talks about the great default,
00:09:20.000 | that in his opinion, as a longtime economist talking about these very matters,
00:09:26.000 | he says that the bright side is always on the other side of the great default.
00:09:30.000 | And the great default is basically when the U.S. government is unable to meet its various obligations
00:09:38.000 | and thus defaults on its promises using a variety of different methodologies.
00:09:43.000 | And then on the other side of the great default, there are people who wake up and say,
00:09:47.000 | "Hey, listen, I guess it's true. The government can't support us. We have to build a new system.
00:09:51.000 | We have to build entirely new systems." And it's not necessarily a bad thing,
00:09:54.000 | although it is a significantly painful thing.
00:09:57.000 | And so I've been following these issues for decades, thinking about it, etc.
00:10:04.000 | And I want to share with you where we are, because if we look at the recent Social Security report by the Board of Trustees,
00:10:11.000 | we can see the real-time effect of these overall problems.
00:10:18.000 | We can see what's happening.
00:10:20.000 | And I believe that the general trend is going to be that there will be many adjustments made
00:10:26.000 | to all of these government systems, the government benefits,
00:10:30.000 | in order to try to adjust the numbers in a variety of different ways.
00:10:37.000 | You'll see as I talk about the Treasury report, the tax rates will probably go up and the payouts will go down.
00:10:45.000 | Now, again, I never recommend anyone to go with zero, although, of course,
00:10:49.000 | I have many clients and work with many people who say, "I just don't want to plan at all on Social Security being there."
00:10:54.000 | I don't think Social Security is going to disappear,
00:10:57.000 | but its impact in the future is going to be far less than what it is right now.
00:11:01.000 | And I think this is broadly understood.
00:11:03.000 | Even when I was a mainstream financial advisor, the majority of mainstream financial advisors that I interact with
00:11:09.000 | would discount for younger clients by up to 50% of Social Security benefits.
00:11:14.000 | In the various software packages that we use to plan for clients, you'll often adjust.
00:11:19.000 | And if someone would say 50 to 60, we would discount by 25%.
00:11:24.000 | Someone who's under 50 or under 40, you would discount by up to 50%.
00:11:29.000 | But none of us would take it out completely.
00:11:31.000 | It's just an acknowledgment of the fact that the system is broke,
00:11:34.000 | and that brokenness is going to continue to be revealed more and more.
00:11:38.000 | Let's get to the actual numbers, because what has happened is over the last few years
00:11:42.000 | as I've been talking about this on the podcast,
00:11:47.000 | things started off as bad, and now they are much worse,
00:11:51.000 | and everything has been exacerbated by the pandemic and the financial effects of the pandemic.
00:11:59.000 | It's just that we've gone from bad to worse.
00:12:01.000 | It doesn't mean that catastrophe is on the other side of this year. It's not.
00:12:04.000 | It's just that we've gone from bad to worse, and things get progressively worse.
00:12:08.000 | I want to give you the actual numbers here from the government report.
00:12:11.000 | And we'll talk about how it's even worse than what the government report itself states, so that I can explain it.
00:12:18.000 | I'm reading here from the 2021 annual report of the Board of Trustees of the Federal Old Age and Survivors Insurance
00:12:27.000 | and Federal Disability Insurance Funds.
00:12:29.000 | You can find this at ssa.gov. Just do a search for it.
00:12:33.000 | But I'm reading directly from the publication on ssa.gov.
00:12:38.000 | I want to go to the highlights in Section 1 and read --
00:12:44.000 | I'm going to skip around a couple of paragraphs from the introduction and then read their overall executive summary.
00:12:50.000 | The 2021 annual report of the Board of Trustees.
00:12:54.000 | The Old Age, Survivors, and Disability Insurance Program.
00:12:59.000 | By the way, to interject, it's important that you understand that this is always into different scenarios.
00:13:04.000 | You have three parts to the Social Security system.
00:13:06.000 | You have the Old Age Poverty Alleviation Program, where you get money when you file for Social Security.
00:13:14.000 | That's what most people think of.
00:13:15.000 | However, there are parts two and three.
00:13:17.000 | Part two is survivor benefits for minor children of insured workers and then also disability insurance for those who are fully disabled living on Social Security disability.
00:13:28.000 | So always remember there are three different programs.
00:13:30.000 | The Old Age, Survivors, and Disability Insurance Program, OASDI, makes monthly income available to insured workers and their families at retirement, death, or disability.
00:13:42.000 | The OASDI program consists of two parts.
00:13:46.000 | Retired workers, their families, and survivors of deceased workers receive monthly benefits under the Old Age and Survivors Insurance Program.
00:13:54.000 | Disabled workers and their families receive monthly benefits under the Disability Insurance Program.
00:14:01.000 | Overview highlights.
00:14:03.000 | This section summarizes the report's major findings.
00:14:06.000 | Readers of this report should note that the data and projections presented include the trustees' best estimates of the effect of the COVID-19 pandemic and the ensuing recession, which were not reflected in last year's report.
00:14:20.000 | Employment, earnings, interest rates, and GDP dropped substantially in the second calendar quarter of 2020 and are assumed to rise gradually thereafter toward recovery by 2023, with a level of worker productivity and thus GDP assumed to be permanently lowered by 1%.
00:14:47.000 | In addition, the pandemic and recession are assumed to lead to elevated mortality rates over the period 2020 through 2023 and delays in births and immigration in the near term.
00:15:02.000 | Taken together, these data and assumptions cause the reserve depletion date for the combined OASI and DI trust funds under the intermediate assumptions to change from 2035 shown in the 2020 report to 2034 for this report.
00:15:21.000 | These changes also result in a small but significant reduction in the actuarial balance for the OASDI program.
00:15:30.000 | The pandemic and precipitous recession have clearly had significant effects on the actuarial status of the OASI and DI trust funds, and the future course of the pandemic is still uncertain.
00:15:44.000 | Trustees will continue to monitor developments and modify the projections in later reports.
00:15:50.000 | Stick with me for one difficult paragraph and then we'll get to some of the juicy stuff here in the introduction.
00:15:56.000 | In 2020, at the end of 2020, the OASDI program was providing benefit payments to about 65 million people, 49 million retired workers and dependents of retired workers, 6 million survivors of deceased workers, and 10 million disabled workers and dependents of disabled workers.
00:16:18.000 | During the year, an estimated 175 million people had earnings covered by Social Security and paid payroll taxes on those earnings.
00:16:27.000 | Keep those numbers in mind.
00:16:29.000 | 175 million earners and 65 million receivers.
00:16:34.000 | The total cost of the program in 2020 was $1,107 billion or $1.1 trillion.
00:16:43.000 | The total income was $1,118 billion, which consisted of $1,042 billion in non-interest income and $76 billion in interest earnings.
00:16:57.000 | Asset reserves held in special issue U.S. Treasury securities grew from $2,000 to $1,010 billion.
00:17:12.000 | The total revenue from the program grew from $2,897 billion at the beginning of the year to $2,908 billion at the end of the year.
00:17:23.000 | The total cost and asset reserve accumulation shown for 2020 reflect the 12 months of benefits scheduled for payment and exclude the benefits scheduled for payment on January 3, 2021, which were actually paid on December 31, 2020, as required by the law.
00:17:40.000 | Listen carefully. Short-range results from 2021 to 2030.
00:17:44.000 | Under the trustees' intermediate assumptions, Social Security's total cost is projected to be higher than its total income in 2021 and all later years.
00:17:58.000 | Social Security's cost has exceeded its non-interest income since 2010.
00:18:08.000 | To illustrate the actuarial status of the Social Security program as a whole, the operations of the OASI and DI trust funds are often shown on a combined basis as OASDI.
00:18:24.000 | However, by law, the two funds are separate entities, and therefore the combined fund operations and reserves are hypothetical.
00:18:33.000 | The combined reserves are projected to decrease from $2,908 billion at the beginning of 2021 to $1,336 billion at the end of 2030, the last year of the short-range period.
00:18:52.000 | Again, it's hard to do these numbers in audio, so let me just repeat it and I'll use trillions this time.
00:18:57.000 | The combined reserves are projected to decrease from $2,908 billion in 2021 to $1,336 billion at the end of 2030.
00:19:10.000 | The projection is that we go from basically $3 trillion to $1,336 billion in those reserve funds.
00:19:17.000 | The reserves of the combined OASI and DI trust funds, along with projected program income, are sufficient to cover projected program cost over the next 10 years under the intermediate assumptions.
00:19:33.000 | However, the ratio of reserves to annual cost is projected to decline from 253% at the beginning of 2021 to 85% at the beginning of 2030.
00:19:49.000 | Because this ratio falls below 100% by the beginning of the 10th projection year, the combined OASI and DI trust funds fail the trustees' test of short-range financial adequacy.
00:20:06.000 | Considered separately, the OASI and DI trust funds also fail this test.
00:20:14.000 | For last year's report, the trustees projected that combined reserves would be 248% of annual cost at the beginning of 2021 and 94% at the beginning of 2030.
00:20:29.000 | Notice again that we're talking here about reserves.
00:20:32.000 | And what I'll point out to you in a little bit is that even the concept of reserves is all fake because there's no assets here.
00:20:40.000 | This is all made up reserves. But it is a statistical accounting trick that is itself falling short.
00:20:48.000 | Let's go on. Long-range results from 2021 to 2095.
00:20:53.000 | Under the trustees' intermediate assumptions, OASDI cost is projected to exceed total income in 2021. And the dollar level of the hypothetical combined trust fund reserves declines until reserves become depleted in 2034.
00:21:11.000 | Figure 2D2 shows the implications of reserve depletion for the combined OASI and DI trust funds.
00:21:19.000 | Considered separately, the OASI trust fund reserves become depleted in 2033.
00:21:26.000 | And the DI trust fund reserves become depleted in 2057.
00:21:31.000 | In last year's report, the projected reserve depletion years were 2035 for OASDI, 2034 for OASI, and 2065 for DI.
00:21:45.000 | For the third year in a row, there has been a significant change in the DI, remember that's disability income, reserve depletion date because the DI reserve depletion date is very sensitive to changes in program cash flows.
00:21:59.000 | And there is now less revenue projected in the near term for the DI program than was expected in last year's report.
00:22:07.000 | Nevertheless, the DI program has continued to have low levels of disability applications and benefit awards for 2020.
00:22:18.000 | Disability applications have declined substantially since 2010, and the total number of disabled worker beneficiaries in current payment status has been falling since 2014.
00:22:30.000 | For this report, disability applications are assumed to rise gradually from current low levels, resulting in a rise in the age/sex adjusted disability incident rate to an ultimate rate of 5.0 per thousand exposed by the end of the short-range projection period.
00:22:47.000 | The same ultimate rate as was assumed in last year's report.
00:22:53.000 | OASDI cost has been increasing much more rapidly than non-interest income since 2008, and is projected to continue to do so through about 2040.
00:23:05.000 | In this period, the retirement of the baby boom generation is increasing the number of beneficiaries much faster than the increase in the number of covered workers, as subsequent lower birth rate generations replace the baby boom generation at working ages.
00:23:21.000 | The big point is simply that we're not having babies.
00:23:26.000 | The entire history of the social security system has been built upon the premise that there would be lots and lots of workers to pay for a very few retirees, and that those workers would work for a very long period of time, and that the retirees would die very quickly.
00:23:46.000 | And so we have multiple factors affecting this. The biggest factor is simply that we're not having many workers because we're not having lots of babies, and then people are living longer and thus drawing more money.
00:24:02.000 | Combine that with low interest rates and you have the, I don't want to say the perfect storm that's overused, but you have all of the factors working against you.
00:24:12.000 | Back to the report. Between about 2040 and 2055, OASDI cost and non-interest income are projected to increase at more similar rates as the cost rate, which is the ratio of program cost to taxable payroll, roughly stabilizes, reflecting the return to birth rates above two children per woman between 1990 and 2008.
00:24:41.000 | Between 2055 and 2078, OASDI cost is projected to grow significantly faster than income because of the period of historically low birth rates starting with the recession of 2007 to 2009.
00:24:57.000 | Between 2078 to 2095, cost is projected to grow somewhat slower than income as birth rates return to a level of two children per woman for 2056 and thereafter.
00:25:12.000 | For the 75-year projection period, the actuarial deficit is 3.54% of taxable payroll, increased from 3.21% of taxable payroll in last year.
00:25:41.000 | The closely related open group unfunded obligation for OASDI over the 75-year period is 3.35% of taxable payroll, increased from 3.03% of payroll in last year's report.
00:26:01.000 | The open group unfunded obligation for OASDI over the 75-year period is $19.8 trillion in present value and is $3 trillion more than the measured level of $16.8 trillion a year ago.
00:26:21.000 | Remember, this is an unfunded obligation. This is a shortfall in the U.S. government obligations that is not reflected in the official amount of money that is owed as debt.
00:26:37.000 | Remember that whenever you look at the debt of a country, such as the United States, you have two basic figures.
00:26:56.000 | The first is the debt of the country, which is the amount of debt that the government has to pay. The second is the debt of the country, which is the amount of debt that the government has to pay.
00:27:25.000 | To illustrate the magnitude of the 75-year actuarial deficit, consider that for the combined OASI and DI trust funds to remain fully solvent throughout the 75-year projection period,
00:27:43.000 | 1. Revenue would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 3.36 percentage points to 15.76%.
00:28:07.000 | 2. Scheduled benefits would have to be reduced by an amount equivalent to an immediate and permanent reduction of about 21% applied to all current and future beneficiaries,
00:28:26.000 | or about 25% if the reductions were applied only to those who become initially eligible for benefits in 2021 or later, or 3. Some combination of these approaches would have to be adopted.
00:28:44.000 | So remember, the trust fund committee here, the board of directors here, is trying to report, and they're trying to show how big the deficit is, the 75-year actuarial deficit.
00:28:58.000 | And so they say that for these funds to remain fully solvent throughout the 75-year projection period, remember, fully solvent throughout the 75-year projection period,
00:29:10.000 | 1. Revenue would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 3.36 percentage points to 15.76%.
00:29:33.000 | 2. Scheduled benefits would have to be reduced by an amount equivalent to an immediate and permanent reduction of about 21% applied to all current and future beneficiaries,
00:30:02.000 | or about 25% if the reductions were applied only to those who become initially eligible for benefits in 2021 or later, or 3. Revenue would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 3.36 percentage points to 15.76%.
00:30:09.000 | So let's continue because they understand that there might be some deferral. Listen carefully. Quoting again from the report.
00:30:16.000 | "Do you see, in the current political dynamics in the United States, do you see any reasonable chance for there to be substantial action on this issue now in the U.S. government?"
00:30:36.000 | I don't see it. I don't see it. You consider the dynamics yourself. I don't see it. I think that the likely outcome is that the political leaders who currently wield political power will choose to continue to defer this issue longer rather than come together and collaborate on the difficult decisions
00:31:03.000 | because both of these approaches are politically unpalatable. Either to raise payroll tax rates—let's
00:31:11.720 | just use rough numbers, right?—to raise payroll tax rates 3.36 percent, from 12.4 percent to 15.76
00:31:20.600 | percent, that would be an immediate loss of income for working, wage-earning Americans of
00:31:31.720 | almost 4 percent of their wages, immediately. That's a significant amount, right? If all of
00:31:37.960 | your wages were immediately reduced by 4 percent, that's a significant number, immediately.
00:31:41.960 | Would the Republicans have a desire to do that? Republicans don't want to raise taxes.
00:31:48.040 | And do Democrats want to raise taxes? Democrats don't want to raise taxes on wage-earning
00:31:54.360 | Americans, right? They've never run on that platform. And so who wants to have taxes raised
00:32:00.600 | on wages? Nobody wants that. In addition, what about the decreased benefits? Remember,
00:32:08.600 | it's 21 percent across the board if applied to all beneficiaries right now.
00:32:13.720 | Do either the Democrat Party or the Republican Party want to step forward and say,
00:32:20.040 | "We are the party that is going to immediately reduce Social Security benefits for all Social
00:32:26.920 | Security recipients by 21 percent"? That's politically unfeasible, especially given the
00:32:37.000 | massive political power that the retirees hold in the United States of America. It's unimaginable
00:32:44.280 | to me. Or 25 percent for reductions immediately applied to all those initially eligible for
00:32:50.520 | benefits in 2021 or later? So can you imagine the politicians saying, "Okay, 2021, that's the year.
00:32:56.840 | That if you apply for Social Security benefits for anyone going down the future,
00:33:01.240 | that this is the year by which your benefits are immediately cut by 25 percent. Your projection
00:33:08.280 | was that you were going to be receiving $2,000 a month of Social Security retirement income,
00:33:14.040 | and you've waited until 70 to file, but now it's going to be immediately cut by 25 percent,
00:33:21.160 | from $2,000 to $1,500 per month"? That's unimaginable that that would actually be
00:33:26.200 | politically plausible. Just consider the political power of millions and millions of men and women
00:33:33.880 | in their 50s who are looking forward to retiring in their 60s, millions and millions of retirees
00:33:42.280 | who were in their 60s who didn't take early retirement at 62, have been waiting until 68,
00:33:48.440 | 67, 68, or 70 to file for benefits. These are politically very, very powerful people that vote
00:33:56.760 | in very high numbers and would be easily targeted and easily energized if this were to become a
00:34:03.400 | political issue. And what political context means that these voters would have it, right?
00:34:12.600 | There's such a tremendous warfare going on on a political basis where, by what appeal... Let's
00:34:20.440 | pretend that I'm a 62-year-old wage earner, a 62-year-old worker, and I've been looking forward
00:34:28.200 | to retiring at 67 and a half. What argument could you make to me that would say that I should reduce
00:34:36.360 | by 25% my earnings? And what benefit, especially when I look at all the other areas that we could
00:34:45.080 | cut? The point is that I don't see how a politician on this basis in today's extremely divided
00:34:52.120 | electorate would be able to find the common ground where people could come together and say, "Yes,
00:34:56.520 | we should stand together because we have to." Now, that's taking immediate action. So let's
00:35:01.640 | continue on. Quoting back to the report, "If substantial actions are deferred for several
00:35:06.920 | years, the changes necessary to maintain Social Security solvency would be concentrated on fewer
00:35:14.600 | years and fewer generations. Significantly larger changes would be necessary if action is deferred
00:35:24.520 | until the combined trust fund reserves become depleted in 2034. For example,
00:35:32.680 | maintaining 75-year solvency with changes that begin in 2034 would require
00:35:42.600 | (1) an increase in revenue by an amount equivalent to a permanent 4.2 percentage point payroll tax
00:35:54.040 | rate increase to 16.6% starting in 2034; (2) a reduction in scheduled benefits by an amount
00:36:05.160 | equivalent to a permanent 26% reduction in all benefits starting in 2034; or (3) some combination
00:36:15.640 | of these approaches." Again, let me repeat because it's hard to grasp this all in an audio form.
00:36:22.120 | Let's say that nothing happens now, which is what the trustees are saying. We can't do anything
00:36:25.720 | right now. So let's look at 2034 as the year. For context, we're basically eight years away from
00:36:32.120 | that. Imagine two presidential elections, one and a half Senate – I mean, you got the elections along
00:36:39.160 | the way, but basically two presidential elections away from that. So we're going to maintain 75-year
00:36:44.280 | solvency with changes that begin in 2034. That's going to mean that we're going to need to increase
00:36:49.960 | a permanent 4.2 percentage point payroll tax rate increase to 16.6%, and that starts in 2034.
00:36:59.240 | By the way, that to me is believable, that they could potentially do that, but I don't see how
00:37:03.960 | they would get the legislation through given the way the political system is in the United States
00:37:09.400 | right now. I don't see how you would get Republicans and Democrats to come together and work
00:37:14.200 | on this. Maybe at some point in time there could be some magical change where we're like, "No,
00:37:18.920 | guys, we all got to come together and everyone's got to come to the table and we all got to give
00:37:22.600 | something up," but right now that's not the way the rhetoric goes. The rhetoric is not towards
00:37:27.400 | that sense of let's all be responsible and let's work together and let's all sacrifice some. The
00:37:31.640 | rhetoric is firmly planted on let's all focus on 100% on very much getting as much as we can for
00:37:41.800 | our team and screw the rest of the guys. Either we go to 16.6% starting in 2034 total of Social
00:37:50.280 | Security taxes, which would mean that let's remember there would still be Medicare taxes on
00:37:55.000 | that. Medicare is in way worse shape than Social Security, which we'll get to in a moment, but
00:38:02.680 | the point is that Social Security taxes would go from 12.4% to 16.6% for all wages, or to a
00:38:10.360 | reduction... Excuse me. Here they're not messing with the wage base, so I misspoke when I said all
00:38:15.640 | wages, on all workers' wages up to the wage base, or to a reduction in scheduled benefits by 26%
00:38:24.920 | permanent reduction, 26% starting in 2034. So if you are... Let's see. You can do the math. If
00:38:35.480 | you're eight years away from filing for Social Security, recognize that that would be a 26%
00:38:41.240 | reduction for your first benefits, and every person who is receiving Social Security, there
00:38:49.640 | would be a 26% reduction in your benefits, a quarter across the board. Again, imagine the
00:38:56.520 | political turmoil of that, because the people who are dependent on Social Security, how do you live
00:39:05.000 | with a 26% reduction in your income? You have to go and work more. And yet we face one of the most
00:39:12.280 | difficult job markets for those who are not current. What I mean is that we're facing
00:39:17.080 | unprecedented automation, unprecedented changes. The skills that were relevant 10 years ago are
00:39:23.560 | not the skills that are relevant today for many, many jobs. And so those people who are the most
00:39:29.960 | dependent on Social Security are often those who are just simply irrelevant at this point in time
00:39:36.360 | in the labor market. It's a major, major problem. So let me just wrap up with their conclusion of
00:39:43.080 | this report. Under the intermediate assumptions... This is the conclusion of the introduction.
00:39:48.920 | I'm not going to read the whole report. Under the intermediate assumptions, the projected
00:39:52.280 | hypothetical combined OASI and DI trust fund asset reserves become depleted and unable to
00:39:59.240 | pay scheduled benefits in full on a timely basis in 2034. At the time of depletion of these combined
00:40:08.360 | reserves, continuing income to the combined trust funds would be sufficient to pay 78% of scheduled
00:40:16.600 | benefits. The OASI trust fund reserves are projected to become depleted in 2033, at which time OASI
00:40:27.080 | income would be sufficient to pay 76% of OASI scheduled benefits. DI trust fund asset reserves
00:40:37.000 | are projected to become depleted in 2057, at which time continuing income to the DI trust fund would
00:40:44.760 | be sufficient to pay 91% of DI scheduled benefits. Lawmakers have a broad continuum of policy options
00:40:54.120 | that would close or reduce Social Security's long-term financing shortfall. Cost estimates
00:41:00.440 | for many such policy options are available at ssa.gov/oact/solvencies/provisions.
00:41:08.520 | The trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way
00:41:16.680 | in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust
00:41:24.040 | to them. Implementing changes sooner rather than later would allow more generations to share in
00:41:31.560 | the needed revenue increases or reductions in scheduled benefits. Social Security will play
00:41:37.640 | a critical role in the lives of 65 million beneficiaries and 176 million covered workers
00:41:43.400 | and their families during 2021. With informed discussion, creative thinking, and timely
00:41:48.600 | legislative action, Social Security can continue to protect future generations.
00:41:54.520 | Now I appreciate the optimistic tone that the trustees have used there. I don't share that
00:42:04.760 | same optimism and I don't think that it's going to disappear because that's also politically
00:42:09.480 | unthinkable, but it's hard for me to see at this point in time how action happens, how things
00:42:15.480 | change. Now we do know that at various times in the past when Social Security's finances have been
00:42:21.800 | majorly affected, that things have changed. And so if you were to navigate to that link at
00:42:28.600 | ssa.gov/oact/solvencies/provisions, you see that there are various reports available
00:42:35.320 | for about eight different estimates that could change. And so here are the different factors
00:42:43.400 | that the trustees talk about. One, you could change the cost of living adjustment. So right now,
00:42:49.720 | as a financial planner, when I speak to a client, I always recommend maximizing Social Security
00:42:56.680 | benefits because Social Security benefits change based upon the changes in the CPI.
00:43:04.200 | So this is a really powerful benefit of Social Security and it just makes a tremendous difference.
00:43:11.560 | In 2022, the Social Security COLA adjustment is 5.9%, which is the biggest since 1982. So 5.9%.
00:43:23.880 | So for somebody who is a retiree, who is facing the seemingly increasingly inflationary environment
00:43:32.200 | in which we live, that 5.9% increase in income is really, really substantial. It's a big,
00:43:40.120 | big benefit. And especially given that that income increases and adjusts every year until death,
00:43:48.040 | that's a powerful benefit of Social Security. So if you talk to any reasonable financial advisor
00:43:54.680 | who is doing his math carefully, and you're in your 50s and your 60s, that financial advisor
00:44:01.400 | is telling you, "Stay working and don't file for Social Security until the latest date you
00:44:07.560 | possibly can. File at 70 because that COLA is going to be applied to your retirement benefit.
00:44:13.880 | You want the highest retirement benefit going forward over the next few decades."
00:44:18.600 | That's the law the way the law is now, but of course they could change that.
00:44:22.200 | They already use CPIW, which doesn't account for all of the inflation, to calculate that,
00:44:28.760 | but they could change even the formulas. So that's the first thing they could change. They
00:44:32.920 | could change the cost of living adjustment provisions. The second factor that could
00:44:36.920 | change would be the level of monthly benefits. This is known as the PIA, the primary insurance
00:44:41.480 | amount in the documents and in Social Security planning. So they could just change the level
00:44:49.400 | of benefits and say, "We're decreasing benefits by 10 percent." The third thing they could change,
00:44:53.480 | they could change the retirement age. And you've seen that happen in the past. And so
00:44:57.480 | the traditional full retirement age has increased substantially. So maybe you go from full retirement
00:45:03.560 | age being 67 to full retirement age being 77. That's the kind of thing that would be a reasonable
00:45:10.440 | change. If life expectancies are increasing, many people would go for that, and that would make a
00:45:15.400 | dramatic difference on the ages. So the third thing is retirement age. Fourth thing is benefits for
00:45:20.680 | family members. You could reduce or adjust or eliminate benefits for family members. You could
00:45:25.080 | eliminate a spousal benefit. You could adjust all of those features. Fifth thing would be payroll
00:45:30.840 | taxes. You could increase payroll taxes, including changing the wage base. And so maybe what you did
00:45:37.000 | is you said, "Instead of just charging you Social Security taxes on the first $142,000 of income,
00:45:41.880 | we're going to charge it on the first $342,000 of income." That would be a major change and
00:45:47.320 | potentially increase it. Or we're going to charge it on all earned income. So all earned income is
00:45:52.760 | going to be subject to this. For high income earners, this would be a major, major consideration.
00:46:00.120 | Next would be the coverage of employment or earnings and inclusion of other sources of
00:46:04.840 | revenue. So do we adjust what is actually covered by Social Security taxes? Do we make Social
00:46:12.120 | Security taxes due not only on wages but also on investment income? Do we make it payable on
00:46:21.000 | dividends? Do we add a Social Security tax to capital gains income? These are all recommendations.
00:46:29.640 | G would be investment in marketable securities. H is taxation of benefits. I actually don't
00:46:36.040 | remember what they're talking about. Provisions affecting trust fund investment in marketable
00:46:41.080 | securities. I haven't read that one. Oh, that's what it was. These are proposals to say instead
00:46:50.920 | of investing the Social Security trust fund into government treasury bonds, which is what it is
00:46:58.200 | now, what if we invested it into marketable securities? One of the proposals would be let's
00:47:04.520 | take 40% of the trust fund reserves and invest them into equities, put them in the stock market,
00:47:11.240 | assuming an ultimate 5.8% annual real rate of return on equities instead of buying government
00:47:18.120 | bonds, which is what they do right now. So that's the proposal on investing in marketable securities.
00:47:24.280 | Next proposal would be taxation of benefits. Do we tax more of the benefits? This is a big change
00:47:30.200 | that has happened. It used to be that your Social Security benefits were received tax-free.
00:47:37.800 | Then of course, Social Security trust fund ran out of money, the whole system was going bankrupt,
00:47:42.280 | and so they imposed taxation on it. So now the way the system works is you are taxed on your income
00:47:48.520 | to provide for the contributions to the Social Security funds. Then when you start to receive
00:47:56.040 | your benefits from the Social Security funds, a portion of it is received without tax,
00:48:00.280 | depending on your income, but then some percentage of it, and in many cases a significant portion of
00:48:07.080 | it, is taxed again, which a lot of people would see as kind of a silly, crazy system.
00:48:13.160 | You're taxed on your income on the way in, and then your profits from that fund are then taxed
00:48:19.560 | again when they come into you again. Next proposal is individual accounts. So here,
00:48:25.480 | this was what President Bush lobbied for back in the 2000s, of saying, "Hey, what if we allow
00:48:31.640 | people to take some of their accounts and get them out of the Social Security system when we
00:48:36.120 | privatize some portion of Social Security?" So those are the different estimates that you could
00:48:41.800 | read about if you wanted to see what the trustees think of all those different effects. I think that
00:48:47.000 | some combination of these is likely what will happen. I could imagine a package of these things
00:48:54.200 | passing through Congress, and the reason they would need to go together is because it would
00:48:57.880 | allow different politicians to focus on different aspects and to have some kind of compromise.
00:49:03.240 | So maybe you put the list out there and you said, "Okay, we're going to go ahead and we're going to
00:49:07.240 | reduce benefits by 10%, we're going to increase taxes by, say, 2% real numbers, and then we're
00:49:15.640 | going to change the retirement age by a little bit." Those kinds of things may not get all the
00:49:20.280 | way there, but it is appropriate because it gives all the politicians some different thing to
00:49:26.280 | emphasize. Now, that so far is a discussion of the official report, but what is missing in a
00:49:37.560 | discussion of the official report? I think there are a few very important things that are missing.
00:49:43.000 | The first very obvious thing is simply what is actually in the trust fund, right? So the trustees
00:49:53.160 | are talking again and again about, "Hey, our trust fund is diminishing and it's going to be
00:49:57.640 | depleted." What's actually in the trust fund? The answer is there's nothing except government debt.
00:50:03.320 | So this is, I think, the biggest scenario. The word trust fund is propaganda. When people hear
00:50:10.280 | trust fund, they imagine some actual assets that are in there. They imagine that, "Oh, well,
00:50:16.200 | maybe there's some marketable securities, right? Maybe there's mutual fund shares, or maybe there's
00:50:21.400 | a bunch of land or something." Because when you and I have a trust fund, we generally put something
00:50:26.280 | into that that is going to provide us with investment income. And we don't just think
00:50:31.880 | about investing in government bonds, although certainly those are reasonable things that you
00:50:36.280 | could do. But the trust fund is not that way. The trust fund invests exclusively in securities
00:50:43.800 | for the US government. And these are not marketable securities. These are not the same kinds of
00:50:50.120 | T-bills or T-notes or T-bonds that you and I might use. These are a long-term special issue security
00:50:58.280 | that is exclusively created for and sold to the Social Security trust fund. They're not tradable.
00:51:08.360 | Their value doesn't change. They don't have to be marked to the market like all the other
00:51:16.040 | government securities are. They're just simply purchased. The trust fund purchases this
00:51:21.320 | government debt at face value, and then the US Treasury redeems the government debt at face
00:51:26.200 | value. So the benefit of this is that the money that's in the Social Security trust fund,
00:51:32.200 | the numbers on the paper, there's no market fluctuation. There's no up and down years.
00:51:37.880 | The money just simply goes up in value because it's receiving the interest that is credited based
00:51:42.520 | upon the US government's paying out its interest payments. And so there's no investment management
00:51:50.120 | cost. There's no risk, etc. The problem is these are just bits of paper from the federal government,
00:51:55.400 | from the Treasury, that's an IOU. And so there's no actual assets in the trust fund that aren't an
00:52:04.520 | IOU. What happens is you have the US Social Security administration that creates an IOU
00:52:09.720 | to you and to me. I'm a fully insured worker in the US Social Security system. And so the Social
00:52:16.440 | Security system has promised to send me a certain amount of money at certain ages if I retire,
00:52:22.760 | or they've promised to send me a certain amount of money if I am disabled, or they promised to
00:52:27.320 | send me a certain amount of money to my family if I die, which by the way is actually one of the
00:52:32.680 | biggest benefits. The survivor benefits for parents of minor children who die are really,
00:52:39.160 | really significant and can be totally life-changing for a family. That is, I think,
00:52:43.800 | it's a big, big effect. But they've promised to send me that. And so to back up their promise to
00:52:54.440 | send me that money in case those events happen, they have taken the money that they took from my
00:53:04.280 | wages without my consent and they have sent it off to the US Treasury. And the US Treasury has
00:53:09.400 | given them a promise to pay them a certain amount of interest, which they will then use to send me
00:53:15.480 | my money. So basically I have a double IOU from the federal government. It's just directly the
00:53:22.280 | government promises to send me money. The whole idea that there's a trust fund is a fraud, right?
00:53:27.160 | There is no trust fund. There's no money. It's just another IOU from the general budget. And so
00:53:32.840 | if there's a shortfall from the social security system, what's actually going to happen if that
00:53:37.960 | trust fund is actually depleted? What's actually going to happen? Well, it just becomes now the
00:53:42.600 | government needs more money. Now add that on to everything else that we talked about in the case
00:53:48.360 | of government debt. Add that on to the fact that the US government is trillions, potentially
00:53:53.720 | trillions, in deficit right now. Add that on to the current fiscal crisis of the normal everyday
00:54:00.920 | scenario in the United States. You see, it's just a—house of cards is probably too extreme and too
00:54:08.280 | overused of a metaphor. But in the same way that a house of cards can collapse if one underlying
00:54:14.120 | thing collapses, it's very much like that, that you just have these increasing amounts of
00:54:20.280 | liabilities. So that's, I think, the biggest thing. The second biggest thing is that the massive
00:54:30.600 | changes in demographics. If you look all over the world right now, there were some people that early
00:54:35.960 | on in the pandemic, there were some people that were planning to—excuse me, there were some
00:54:45.960 | articles that said, "Oh, we're going to have some kind of baby boom out of the pandemic," because
00:54:50.120 | of course people are home more, they're going to have fewer things to do, and thus they're going
00:54:55.800 | to conceive more children, yada, yada, yada. That has simply not happened. And in fact, it's been
00:55:01.080 | the opposite. There's been a significant decline. And so you look in places like the United States,
00:55:05.560 | the United States is one of the healthier of countries around the world, and the United States
00:55:10.840 | is in a natural decline in population. At this point in time, the birth rate in the United States
00:55:16.120 | is below the replacement rate. The only thing that is propping the United States up right now
00:55:22.040 | is, number one, the rate of immigration, and number two, the birth rates among newer immigrants to the
00:55:28.360 | United States, which have tended to be higher than those long-term citizens of the United States.
00:55:35.640 | And even with that, the birth rates are below replacement rates. And those rates are going down
00:55:41.240 | and have gone down. And this is—you always wonder, is this a permanent trend? Around the world,
00:55:47.080 | there seems to be a very high correlation to increasing levels of education, increasing levels
00:55:55.080 | of income, and decreasing birth rates. And some of that is understandable. I don't personally
00:56:02.680 | think there's just this direct relationship between somebody being educated and them having
00:56:09.320 | fewer babies. I'm highly educated, and I see no reason—I have four children, right? My wife and
00:56:17.880 | I have done our job. We've replaced ourselves, plus a little. I know lots of highly educated
00:56:23.240 | people who have children. And there's no reason to me that I can find a causal relationship as
00:56:28.520 | to why education should lead to decreasing birth rates from the factor of what you actually learn
00:56:36.520 | when you're a highly educated person. I'm so glad to see that there—like Elon Musk, I think he has
00:56:42.040 | six children now. Sometimes you find these very highly educated, very successful people, and they
00:56:47.160 | actually have babies. I think recently I saw that—who's the big soccer star, right? Ronaldo?
00:56:54.120 | I think he and his wife are having a fifth child, something like that. And so thankfully,
00:56:58.760 | not everyone is not having babies. But what has happened is there's been a major cultural change
00:57:04.280 | about having children. And I think this is going to continue to have a long-term effect.
00:57:09.080 | It is very, very common for me to talk with people who are financial planning clients,
00:57:16.040 | people that I work with, who just say, "I don't want to have any children," right? They just don't
00:57:19.240 | want to have children. It's, I think, to the point where I ask, right? We've been trained,
00:57:27.400 | even as a culture, to stay out of each other's bedrooms, right? To stay out of these things.
00:57:33.960 | People always laugh and joke about how, you know, the pressure that they would feel from their
00:57:40.600 | mother or their grandmother to have children. Well, I think that generations have learned not
00:57:43.960 | to put the pressure, because many young people have said, "No, we're not going to have babies."
00:57:47.240 | And so many, many people don't want to have children. And I guess the relationship,
00:57:52.680 | from an educational perspective, is that people believe and see that when you get into a highly
00:57:59.080 | corporatized society, it's a society that is basically unfriendly to children, and children
00:58:04.840 | become difficult. My family, even though we're not a particularly big family, we don't fit well
00:58:10.920 | in many aspects of society. Society has made it difficult and somewhat uncomfortable for us
00:58:18.760 | to come and go in society with children, and we only have four. And so when you look around,
00:58:25.720 | you understand why birth rates have gone down, but it's a devastating trend. And I think where
00:58:32.600 | you observe this the most is when you go to a place where it's different. I remember a number
00:58:38.200 | of years ago, where my wife and I, we were in Salt Lake City, Utah, obviously a heavily Mormon
00:58:44.920 | city. And I remember seeing a young couple on the street, and by young couple, I mean,
00:58:52.360 | they looked like 20 years old, 21 years old, something like that, just very young, fresh-faced,
00:58:57.720 | and they were pushing a baby carriage. And I just thought to myself how unusual that was. I was like,
00:59:02.760 | "What weirdos." Now, we had three children of our own, but I looked at them and I realized
00:59:07.320 | that that's a scene that I don't ever see where I live, right? That's a scene where I don't ever
00:59:12.920 | see in most cities. You don't see a couple, a young couple out pushing a baby stroller in
00:59:20.440 | most places. What you see is you see young couples out with their dogs,
00:59:24.200 | you see young couples out together, you see a few middle and older couples, right? It's common to
00:59:31.720 | see a 28-year-old or a 32-year-old or a 35-year-old woman out pushing her baby, but you don't ever see
00:59:39.240 | a young couple out pushing a stroller through the city. And I just realized that if you actually
00:59:44.200 | look at society around us, we live in a very barren society. We live in a society in which
00:59:51.160 | there are no babies. And what's interesting is I watch my own generations, my friends,
00:59:58.600 | and I watch, and what you have to realize is that many families are asking themselves the questions,
01:00:04.200 | "Well, should we have one baby or should we have two babies?" And you see them have two,
01:00:10.600 | and they're like, "Okay, well, we've had two." Well, two is not even… In and of itself,
01:00:15.720 | two is a declining population. And yet, how many of your friends do you know who have one child
01:00:21.880 | or no children? I mean, we all have tons and tons of friends. Even if you have three children
01:00:29.960 | or four children, we all have tons and tons of friends who have two and one child or no children.
01:00:36.760 | And so, does this change? I don't know. I don't know. You do see in most religious circles,
01:00:47.800 | right, there is a high correlation of birth rates to strong religious conviction. You see that in
01:00:58.520 | Christian communities, Jewish communities, Muslim communities. The people who have the
01:01:03.480 | most children are usually people who have some kind of strong religious conviction.
01:01:09.560 | That's often not explicit. It's more of a cultural thing, and cultural thing in terms of
01:01:17.960 | kind of the way that they look at the world, and then also a cultural thing in terms of it's
01:01:22.440 | comfortable to have children in that environment. It's very uncomfortable for my wife and me
01:01:29.080 | to go into many kind of normal environments that are highly secular, because our children just
01:01:35.320 | don't fit, right? You go into a restaurant, there's one table. You take four children into
01:01:41.080 | a restaurant, and you're sitting at the table with your children. So, you're shunned. You're
01:01:44.120 | kind of on the outside. Nobody means it. I'm not complaining. You're just naturally not there.
01:01:47.880 | There's nothing for children to do. There's no other children for them to play with.
01:01:50.760 | On the other hand, you go to a church potluck. We were visiting recently some friends and
01:01:56.600 | listeners in North Carolina. They invited us to come by their church potluck, and this is a devout,
01:02:02.120 | conservative Christian church. It's the most comfortable thing in the world. You walk in with
01:02:07.480 | your children, you look around, there's dozens and dozens of children, and boom, you're good,
01:02:11.000 | right? There's other children to play with. So, you kind of just see this natural connection
01:02:15.160 | where it's just comfortable in those communities to have children. Your events are naturally
01:02:21.640 | associated to children. Everything kind of works, whereas much of modern society, as it has become
01:02:27.160 | intensely secular, intensely corporatized, et cetera, just unpleasant, uncomfortable places
01:02:32.440 | for children. And people realize that. They respond to that. They recognize the difficulties
01:02:38.280 | right now, right? My family and I are homeless, right? Why are we homeless? I haven't been able
01:02:43.240 | to find a suitable house that provided me the value that I want that would work for a family
01:02:48.840 | with four children, two dogs, homeschoolers who also work at home. I don't need a huge house,
01:02:56.520 | but I need a house that has the amenities that I need. And so, you look at many places, and that
01:03:01.160 | just... It doesn't fit. It's very hard to rent a house, since I don't want to buy a house right
01:03:06.280 | now. It's just hard to rent a house under those conditions in most places. So, I didn't mean to
01:03:10.760 | go so deep into that, just to point out that demographics are a big, big, big deal right now.
01:03:17.080 | And so, you just see the demographic collapse of societies. I routinely observe families,
01:03:24.520 | grandparents, "Oh, we finally had our first grandchild," and yet recognize that for every
01:03:29.960 | grandparent, there should be at least... For even just replacement, you need two times two times
01:03:38.120 | two, right? Just to replace, you need multiple. And yet, I routinely see grandparents who are
01:03:44.280 | enthusiastic to have one grandchild. It's remarkable to observe. So, demographic trends
01:03:50.840 | do not look kindly upon the social security projections. What about inflation? What about
01:04:00.360 | inflation? Remember that the... What I said, right? That the rate of inflation for 2022 is 5.9%.
01:04:12.600 | 5.9%. Okay? Now, the social security system uses the CPIW rate. CPIW rate. Last month,
01:04:25.560 | October 2022, the CPIW rate for October 2021 was 6.9%. 6.9%. And the 2021 COLA adjustment rate,
01:04:43.720 | based upon the CPIW for social security, was 1.3%. So, people who are living on social security
01:04:50.920 | have had a year here of significant inflation on many, many factors, and yet their own personal
01:05:01.000 | income is not keeping up. So, you say, "Okay, 5.8%. That's gonna be great in 2022. My income's
01:05:07.080 | gonna go up by 5.8%." Yeah, hold on. Remember that possibly inflation is higher. In October,
01:05:13.320 | that CPIW rate was 6.9%. Now, that was a monthly rate. We'll see what the annual rate is.
01:05:18.680 | But imagine... Right now, rents. I've worked with a number of people who are increasing rental
01:05:24.760 | rates by double digits. Prices on many key factors are high. Very, very high rates of inflation right
01:05:34.360 | now. And that's not even to get into the fakery that is included in all of the CPI, the official
01:05:42.200 | CPI calculations. So, it's difficult. Now, here's your final bit of bad news for the day. Social
01:05:53.560 | security is one of the healthiest of the big entitlement programs. In fact, it is the healthiest
01:05:59.400 | of the big three. You got social security, Medicare, and Medicaid. And Medicare and...
01:06:05.480 | So, I've talked about social security. It's pretty stable. It's the easiest one to talk about
01:06:10.440 | because we're dealing with numbers. Medicare and Medicaid are less healthy than social security.
01:06:15.480 | They're just harder to analyze because you don't have clear numbers, right? Medicare, "Oh, the
01:06:19.640 | cost... The care is available." But is it? Last year, I did that story on Maine, on Medicaid
01:06:27.000 | workers. And I explained how there are so many people who are fully eligible for Medicaid benefits
01:06:31.560 | that cannot get nurses because the nurses are not available. And so, there's so much fakery and
01:06:38.360 | problems happening in Medicare and Medicaid, and they're in far worse situation than social security.
01:06:43.880 | So, you see overall, you see the difficulties that these government programs face. Now, remember
01:06:50.440 | that that's all layered upon... Remember, that's why I talked about the IOUs. That's all layered
01:06:56.200 | upon the difficulties that the US government is facing of just simply even balancing its own books.
01:07:05.320 | No government surplus. So, you get President Biden who comes in, wins the election handily
01:07:12.040 | as measured by the Electoral College, says, "I've got a mandate, going to pass taxes.
01:07:16.200 | We've got democratic control barely of the Senate, significant democratic majority in the House."
01:07:21.480 | Says, "We're going to massively increase taxes. We're going to solve this shortfall."
01:07:26.600 | Well, what happens? We don't know yet, final words for sure, but right now,
01:07:32.520 | all the big things gone. No ability to pass them. All the big tax increases basically gone.
01:07:38.520 | And what's going to happen in 2022? Obviously, we don't know, but if early indications are
01:07:47.480 | any guess, and if any, and kind of long-term observations, it seems like there's a very good
01:07:53.800 | chance that the Democrats get creamed in 2022, and that you wind up with basically a lame duck
01:08:01.320 | president for the last two years of his administration. What happens then? You get
01:08:10.520 | just more gridlock, gridlock. And so, the problems are getting worse. Has our ability to talk about
01:08:15.240 | the problems increased at all? Nah, not a bit. It's gotten worse. So, the point is these problems
01:08:23.960 | are significant. And then finally, I guess the last point to put into it. What's the last point?
01:08:29.560 | Does the attractiveness, has the attractiveness of the United States increased in value?
01:08:38.200 | I talked about immigration. In today's world, there once was a day in which the United States
01:08:46.360 | was a beacon around the world for highly motivated, highly energetic people to
01:08:53.800 | immigrate to. And you can live very, very well in the United States. I do my very best to be
01:09:01.000 | honest with the facts. And the reality is you can live very, very well in the United States.
01:09:05.800 | You can live a great lifestyle. You can pay a relatively modest amount of tax. There's all
01:09:10.120 | kinds of options. But what is happening is as you have seen millions, hundreds of millions,
01:09:15.320 | billions of people come out of poverty all around the world, you can now live very, very well in
01:09:20.280 | many places around the world. And so, you kind of see this legacy corrupt, high cost system in the
01:09:27.080 | United States. What do you need it for? And then you look at the decentralization happening around
01:09:32.040 | the world, the massive levels of decentralization, the access to information, the access to
01:09:36.680 | education, everything going online, everything going to connectedness. You see new technologies
01:09:42.200 | being developed, Bitcoin and the ability to store money in things that aren't just US dollars,
01:09:48.040 | aren't just Swiss francs, aren't just euros, etc. The competition is intense. And so, you look at
01:09:53.160 | who the immigrants are to the United States. And much of the time, new immigrants to the United
01:09:58.600 | States are not people who want to come and start a mega multi-billion dollar business. Many times,
01:10:03.400 | the immigrants to the United States are people who are going to be day-to-day workers, very low wage,
01:10:08.600 | unskilled labor. Thousands and thousands of those immigrants, not so many immigrants on the high
01:10:13.560 | end. So, you say, "Well, are we fixing that?" No, we're not fixing that. The United States has the
01:10:18.840 | most convoluted, unbelievably stupid immigration system in the world. It's totally insane. And yet,
01:10:26.040 | is there any political will to fix that? No, no. There's no political will to fix it. Again,
01:10:31.880 | Democrats and Republicans, the total logjam. So, I think I've burged over into whining and not of
01:10:37.960 | analysis. The point is, I look at it like, "How do we fix this?" And no, I don't know. So, what can
01:10:45.640 | you do? Let's finish up on a positive point. Number one, it is true that Social Security
01:10:56.040 | is bankrupt. And you'll see that bankruptcy play out over the coming years. But you are not
01:11:04.360 | bankrupt. You do not have to rely on Social Security. Social Security was never intended
01:11:09.560 | to be a standalone retirement program. It was always designed to kind of keep people up from
01:11:12.840 | being totally poor. So, just stop being poor, and then your need for Social Security changes.
01:11:19.320 | So, what can you do? Focus on your income. Focus on keeping your skills current. Focus on building
01:11:25.240 | a career that grows. Focus on building just business skills and building a business, etc.
01:11:33.560 | Focus on your expenses. Keep your expenses modest so you can save money. Invest your money as wisely
01:11:40.200 | as you know how. Do your very best to become financially stable and move towards financial
01:11:48.040 | independence. Because while these legacy systems are collapsing, we are systematically inventing
01:11:55.960 | brand new systems. We live in the most exciting time in human history where there's more
01:12:00.840 | opportunity available to you today than there has ever been in human history. We are living in a
01:12:05.560 | golden age with millions of new millionaires being created all around the world today.
01:12:11.400 | And unlike any time in human history where you had to be rich, you had to be connected, you had to be
01:12:17.320 | a certain skin color, a certain religion, or a certain this, that, or the other thing to be in
01:12:23.400 | the cool kids club, today all of those boundaries have fallen. And today you can be from any country
01:12:30.280 | in the world. You can be from totally on the outside and there are opportunities available
01:12:35.960 | for you. And we live in an increasingly meritocratic world where money and attention
01:12:43.080 | and opportunities are flowing to those who merit them the most. So what do you do? Well,
01:12:47.400 | you put in the hard work to become a person of merit so that you can merit those things that
01:12:52.280 | will flow to you. Focus on that. Focus on building income streams that will continue. Don't retire.
01:13:00.920 | Dumbest thing you can do in the world, especially if you're poor, is retire and live on social
01:13:04.920 | security. Keep working. Keep working. It's good for you. Work is good for you. Build a job that
01:13:11.640 | you don't want to retire from. Even if it's just a relatively mundane job, it's going to be better
01:13:18.280 | for you. You're going to have a happier life going to a mundane job and seeing your friends,
01:13:25.560 | being a part of the community than you are sitting at home, barely scraping by on social security,
01:13:30.920 | sitting around watching cable news all day, getting angry. Don't do it.
01:13:35.320 | One of the things that's really remarkable, I find myself talking with friends of my peer group,
01:13:41.240 | trying to figure out how to disentangle our parents from the world of cable news. I don't,
01:13:47.640 | most of my friends are like, "Goodness, the cable news people have gotten my parents. They got them
01:13:51.800 | all swallowed up and they're just more politically worried about everything." It's like, how do we
01:13:57.560 | get them out? One way you get out of it is by working and working is good for you. Working
01:14:02.440 | also generates money. It keeps you involved. It's good for you and generates money.
01:14:05.880 | Build a strong family. What is the traditional social security system? It's family. Family is
01:14:13.080 | who you rely on when you're disabled. Family is who you rely on when you're sick. Family is who
01:14:17.640 | you rely on when you're old and have no money. Build that. I will never have a problem
01:14:23.720 | if social security goes bankrupt. Why? I have a strong family network.
01:14:29.960 | Started with my parents, who took care of their parents. By modeling the care of their own parents,
01:14:37.080 | they established the expectation for my generation to pass it along. None of my siblings would ever
01:14:47.160 | allow either of our parents to be destitute. We wouldn't do it. And because their family tree
01:14:53.800 | expanded, my parents have six surviving children, then it would be relatively simple for those six
01:15:00.520 | children to pool their resources and support mom and dad, especially with modest expectations.
01:15:05.800 | Now, if the family tree continues to expand, then things continue on as well. My wife and I have
01:15:12.120 | four children. I have siblings. If I was destitute and bankrupt, I have good relationships with the
01:15:17.160 | siblings. They would help me. We would work together. We would solve problems. So you can
01:15:21.960 | build that in your family. You say, "Well, what if I have no immediate family? My parents are dead,
01:15:26.040 | my wife divorced me, I've got no children, or I'm alienated from them." Well, it goes to your
01:15:30.040 | community. So you need to be involved in a strong local community. Best place to start is your local
01:15:36.680 | church. That's what churches are formed to function as, it's the family of God. And so there's an
01:15:42.440 | opportunity there, but you have to serve. You step in, and then there's care, there's things provided
01:15:48.120 | for you. If you're not part of a church, look to a local community, be part of a local...what's
01:15:52.200 | the word for interest, right? Interest group of some kind. Find some sense of local community
01:15:59.960 | in a local area, because local communities come together to solve things. The federal government
01:16:06.200 | can't solve things, but your local community can. So get involved in your local community in some
01:16:12.120 | way. And then of course, even again, your own children, right? If you will invest into your
01:16:18.600 | children, your children will invest into you. And where you see this the clearest is in cultural
01:16:25.000 | differences. It is not at all uncommon to me to find US American children who don't ever think
01:16:36.440 | about supporting their parents, but it is extremely common for me to find immigrant children
01:16:43.480 | who sacrifice consistently for their parents. Why? It's a different culture, right? I have one friend,
01:16:53.400 | this particular friend. Let's give you an example of this particular household, okay?
01:16:58.200 | In this household, there is one wage earner who is providing...so let me articulate the
01:17:06.680 | household structure. The primary couple is a man from Nigeria and his wife, who is from the United
01:17:16.040 | States. Man from Nigeria, his wife is from the United States. Man from Nigeria, worked very,
01:17:22.760 | very hard and was supported by her while building his career by getting advanced education. Now he
01:17:29.880 | has a high-income job and they have a large house and they've come together as a family. And so
01:17:35.800 | who's in the household? Well, first, his father, he was able to move...sorry, not Nigeria, Kenya.
01:17:42.360 | He moved his father from Kenya to live with them in the United States. And so his father is in the
01:17:47.480 | household. Of course, this...sorry, the man and his wife have three children who were in the
01:17:52.520 | household. And then his wife's parents were not financially destitute. They had money and savings,
01:17:59.160 | but they wanted to come together. And so they're also living in the household. And then his wife's
01:18:05.080 | mother is in the household as well. She's elderly. She has her own assets, but she's together as well.
01:18:10.520 | So you have four generations, literally, under one roof and you have extended family. And they
01:18:15.160 | built this big house where there's appropriate separation from people, where they can have
01:18:20.040 | enough distinction and enough autonomy, but then there can also be a sense of togetherness.
01:18:25.400 | And so that is a very uncommon American model. And yet that's a very common international model.
01:18:34.120 | Now, this is an uncommon family because most of them are just normal, long-time American
01:18:41.720 | citizens, but you do have that immigrant element with the Kenyan husband. The point is that when
01:18:46.840 | you start coming together, you start seeing communities pool their resources and you have
01:18:51.720 | mom and dad and mom and dad, mom and dad, and you have these assets and these children. All of a
01:18:56.120 | sudden, you can have, as long as you've got peaceful family relationships, you can have a
01:19:00.200 | really good lifestyle. You can afford a nice house with nice amenities. And I promise you, it's
01:19:04.680 | many cases a lot better than going and living in a lonely retirement home where the government's
01:19:10.200 | gonna keep you from being visited for a year because of COVID restrictions. So consider that.
01:19:18.200 | And I think that what we'll see in the coming years is we'll see people working longer.
01:19:21.640 | You're already seeing that. You'll see people adjusting. You'll see families adapting,
01:19:26.280 | adjusting. You'll see people coming together, pooling their resources and solving the problems.
01:19:30.840 | Just because Social Security goes bankrupt doesn't mean society ends, doesn't mean the world ends.
01:19:34.680 | Just means Social Security goes bankrupt. And people are resilient. They will respond. People
01:19:40.200 | are smart and resilient. They will respond to the changes that are happening around them. And so
01:19:46.120 | just be one who works ahead of it. Save your money, build your assets up, and you'll be able to
01:19:53.400 | respond to the changing situation. That's it for today's episode. I know it was pretty heavy there
01:19:58.200 | with all those numbers. I did my best to go through it. But it's important to me that we
01:20:01.160 | use this format that we have of audio to articulate and actually dig into some of the research. So
01:20:05.880 | much of the time we just spend all our time perusing headlines. And it's fine to get a
01:20:11.640 | grasp of what the headlines are saying, but it's important to go and read what the actual
01:20:17.560 | trustees report is for Social Security. I just read you the introduction. That's all you need.
01:20:22.120 | These are the trustees for the Social Security system. You could take out cuts of it, and it
01:20:26.600 | sounds like a conspiracy theory. If I took out just a sentence or two and posted on social media,
01:20:32.280 | you're going to wonder, where's the little Facebook fact checker icon? Is this true or not?
01:20:36.200 | Has Snopes checked this out? All the information is there for you. So I try to balance it of not
01:20:41.640 | losing my whole audience by digging into it. Feel free. I'll link the report in the show notes for
01:20:46.360 | today. Feel free to dig into the actual report if you are interested in that. But you need to know
01:20:53.960 | Social Security is not going to be there for you the way it was promised to be.
01:20:57.400 | Social Security will default on its promises to you. It's not going to disappear, but it's going
01:21:04.520 | to default on its promises to you. It's going to cut your benefits by 50%. It's going to increase
01:21:09.880 | your taxes. So make a plan. The final thing, and forgive me, I meant to say this. I was talking
01:21:13.960 | about individual solutions. And I would say, what's the last thing you can do? Well, exercise
01:21:19.000 | your ability to disconnect yourself from a country that is being poorly run. And I do not think that
01:21:29.160 | most people should internationalize. I think that the costs of internationalization from a cultural
01:21:33.960 | perspective are more than most people should bear. But this was, for me, a major reason why a number
01:21:39.880 | of years ago I turned my family's life upside down. Because I looked at these things again and
01:21:45.000 | again and again, and I'm looking at it saying, "Are you guys crazy? You really expect me to sit
01:21:50.920 | around like some, I don't know, milk cow, and that you can just pass all this wacky new stuff? You
01:21:57.800 | can be totally irresponsible and you think that you're going to just continue to milk me and milk
01:22:03.560 | my children and my children's children just because you think you can?" Now, I don't think
01:22:08.680 | that's going to happen. I think that politically speaking, at some point in time, the younger
01:22:13.240 | generations are going to rise up and say, "Screw all you old people who ran out of money. It's your
01:22:17.480 | own fault. I don't know what's wrong with you, but we're not paying it." And they'll change the laws
01:22:21.320 | at some point when the political power changes. But when I look at it, I realize that I don't
01:22:26.920 | want to be beholden to this. And so you don't have to be either. You are not a slave to the United
01:22:31.400 | States of America. You can build a new plan. You can go abroad. You can renounce your citizenship.
01:22:35.560 | You can disappear. You don't have to fund this system. And that is what countries are going to
01:22:40.360 | learn. Now, in the United States, we'll be the last to learn because the United States has this
01:22:44.440 | superiority complex that like, "We're God. We can control everything about a person's lives. We can
01:22:50.280 | make the whole world bend to our will." Well, at the moment, that is true, but that will not be true
01:22:56.040 | 30, 40, 50 years from now. So have a long-term perspective and recognize that if you're listening
01:23:03.000 | to this show, you are an hour and 22 minutes into a very detailed financial conversation.
01:23:09.240 | Either you are wealthy or you are destined to be. I promise you that. The audience of
01:23:15.320 | radical personal finance is very wealthy. So either you are wealthy or you are destined to be
01:23:22.280 | because you are the kind of person who can keep your attention span on a difficult, complex issue
01:23:28.280 | for this amount of time. You will wind up wealthy in the long run.
01:23:32.840 | In that scenario, you have the ability to come and go. You have the ability to go abroad. You
01:23:39.560 | have the ability to go to another country. Remember that. Set an exit plan for your
01:23:46.040 | children. So I don't think everyone should leave. I'm just telling you that if you're
01:23:50.200 | concerned about this stuff, you always do have the ability to pull your own John Galt and get out.
01:23:59.160 | Thank you for listening to the show. I remind you, if you'd like to talk to me personally,
01:24:03.640 | you can go to radicalpersonalfinance.com/consult. I'm currently doing consultations.
01:24:08.600 | Probably not going to be doing for a long time, although we'll see. But I'm currently open for
01:24:12.600 | booking. Go to radicalpersonalfinance.com/consult. You can speak to me there.
01:24:16.360 | radicalpersonalfinance.com/consult if you would like to review any aspect of your own personal
01:24:22.600 | situation. I've done tons of retirement planning for people there.
01:24:27.240 | Recently have done lots and lots of cryptocurrency consultations. That's been really interesting.
01:24:32.760 | I've got so many crypto millionaires in the audience. It's unbelievable.
01:24:35.800 | And been doing lots and lots of internationalization stuff.
01:24:40.760 | And so if those interests or anything else are interesting to you, you want to review
01:24:45.800 | your insurance plan or any of that, you'll never find a more highly credentialed, qualified
01:24:51.000 | former financial advisor. I can't sell you stocks. I can't sell you insurance policies.
01:24:54.600 | I'm not a financial advisor. But you'll never find a more highly credentialed,
01:24:59.800 | experienced financial advisor available for cheaper. Go to radicalpersonalfinance.com/consult.
01:25:03.800 | [BLANK_AUDIO]